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    ESAs Defer Final Two Phases of Margin Rules for OTC Derivatives

    May 04, 2020

    ESAs have published the final report on joint draft regulatory technical standards to amend the Delegated Regulation on risk mitigation techniques for non-centrally cleared over-the-counter (OTC) derivatives (bilateral margin requirements). In response to the COVID-19 outbreak, this amendment is intended to incorporate a one-year deferral of the two implementation phases of the bilateral margin requirements. ESAs have developed these regulatory standards under Article 11(15) of the European Market Infrastructure Regulation or EMIR (EU No 648/2012). The amending draft technical standards were developed to facilitate further an internationally coordinated approach on adapting the implementation of the bilateral margin requirements.

    The one-year extension would result in covered counterparties with an aggregate average notional amount of non-centrally cleared derivatives above EUR 50 billion becoming subject to the requirement to exchange initial margin from September 01, 2021. Additionally, covered counterparties with an aggregate average notional amount of non-centrally cleared derivatives above EUR 8 billion will become subject to the requirement from September 01, 2022. This final report provides explanation on the draft technical standards amending the current Delegated Regulation on bilateral margin requirements with respect to the treatment of physically settled foreign-exchange forward and swap contracts, intragroup contracts, equity option contracts, and the implementation of the initial margin requirements. 

    A first version of these draft regulatory technical standards had been submitted to EC and published on December 05, 2019. However, in response to the COVID-19 outbreak, that version of the final report and the draft standards has now been updated to take into account the agreement from the BCBS and IOSCO to defer, by one year, the deadline for completing the final two implementation phases of the bilateral margin requirements. This updated version of the final report on the draft regulatory standards on bilateral margin requirements thus replaces the version submitted to EC in December 2019. ESAs have submitted this second version of the draft technical standards, presented in the Annex to final report, to EC for endorsement in the form of a Commission Delegated Regulation. Following the endorsement, the standards will then be subject to non-objection by the European Parliament and the Council.

     

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    Keywords: Europe, EU, Banking, Securities, Insurance, Regulatory Technical Standards, OTC Derivatives, EMIR, Implementation Timeline, Margin Requirements, COVID-19, Basel III, ESAs, BCBS, IOSCO

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